Analysis of current economic conditions and policy

Ready, Shoot, Aim: Who Else Gets Hurt in a Sino-US Trade War?

Because the value added of Chinese exports to the United States is fairly low (i.e., exports incorporate lots of foreign components), it is unclear how much damage would be inflicted on bystanders. Wells Fargo uses data on trade in value added to show Taiwan’s exposure.

As of 2011, 1.5% of Taiwanese value added was accounted for by exports to the mainland subsequently incorporated into Chinese exports. For Korea, it’s slightly less than 1%.

More and more, the Trump team look like applying a full court press against all perceived opponents across the globe, prolonging current aggressive wars in foreign countries, provoking, threatening and angering many with trade wars, military exercises, diplomatic and economic sanctions. The risk is heightened now that countries like Russia, Iran, NK and perhaps China would eventually be pressed into a corner from which the only viable response is war, perhaps nuclear war. Trump also looks more like exihibiting symptoms of NPD.

No lessons learnt from the monumental failure of ronnie raygun to protect manufacturing industry at all. My failing memory has it ended colour tv being produced in the USA
Bush Jnr also ended up looking stupid being protectionist as well but at least he was advised against it.
Unfortunately you have a President who is not smart and neither are most of his advisors

For U.S. firms to gain access to China’s market, they’re required to transfer technology to China and China steals the technology U.S. firms don’t transfer. If China paid for the U.S. goods that uses our technology, rather than take and steal it to use in its production, the huge U.S. trade deficits with China would be much smaller.

“If China paid for the U.S. goods that uses our technology, rather than take and steal it to use in its production”.

Here is where BottomFeeder proves his incompetence at basic economics. By producing the goods, the Chinese are paying for the economic costs including labor costs and a return to tangible assets used in production. Oh – they are not paying those monopoly rents the U.S. companies were hoping for. Smart move by the Chinese. We should follow their lead.

PeakTrader I don’t know what you mean by “more simple high school explanations.” It seems to me that you’re the one making the simple high school explanations; i.e., the kind of simpleminded explanation that would appeal to a downscale Trump voter. PGL is making an econ 101 based argument. I don’t know why this is so hard for you to understand since you claim to have had some formal training in economics. The value of copyrights and patents is that they grant the holder of those rights an opportunity to capture monopoly rents. That’s basic. If you disagree with that, then lay out your argument. Show your work.

Americans did the hard work and took the big risks creating new technology.

Actually, it wasn’t “Americans” who did the hard work and took the risks. It was corporations, which may or may not be based in the US. If a corporation decides to sell its technology (and remember, it’s the corporation’s technology, not Amercia’s), then that’s the corporation’s problem, not mine. If they decide access to the Chinese market is worth the risk of patent infringements, then why should I shed an ocean of tears if the deal goes south? Not my patent, not my problem.

Then, exported the goods to the U.S. and put the Americans, who created the technology out of business.

So what? American consumers are better off. Why should I care if some corporation based in the US (and probably avoiding US taxes) goes belly-up?

The Chinese have elaborate unfair trading schemes to send Americans to the unemployment lines.

Not only did you flunk micro 101, but you seem to have flunked international trade 101. Over the long run trade neither adds nor decreases employment. The point of trade is to increase welfare due to countries producing in sectors where that country has a comparative advantage. If you’re worried about unemployed Americans and trade deficits, then try arguing for better fiscal and distribution policies. If you’re worried about lagging GDP growth, then try arguing for higher national saving and better access to higher education. Remember, technology isn’t a physical thing; it’s a learned skill set that allows an economy to rearrange inputs in a more efficient way.

2slugbaits, I knew you’d reply with nonsense and ignorance. You believe it’s a good idea to subsidize Chinese producers with stolen American R&D. And, you expect hard work and big risks to continue when there’s no benefit. Do you want the U.S. to have a smaller share of a smaller pie?

PeakTrader And by your “reply” it’s clear to just about everyone that, contrary to what you have claimed, you do not have any formal training in economics. None. Zilch. Nada. You’re a poser. If you understood the geometry of consumer surplus, then it should be blatantly obvious why your reply is just mercantilist bunk. I’ve asked to answer why PGL’s point about monopoly rents is wrong. You’ve been asked this same question many times. And yet, still no coherent answer. Just the kind of claptrap I’d expect to hear from someone with an interest in political economy, but no formal training.

2slugbaits, I have degrees in economics and passed the comp exams in International Trade. The fact you don’t understand my answer shows you have a very limited understanding of economics. You make ridiculous statements and try to prove your biases, but fail.

Baker is a good economist and writes some quality posts but his desire to be hip with the Bernie Bros leads him to writing some silly critiques of Krugman. Why the Bernie Bros hate Krugman is their problem. Baker needs to get away from that nonsense.

“products that are exported from Taiwan to the mainland, assembled into final products and subsequently re-exported to the United States account for 1.5 percent of total value added in Taiwan. This finding makes intuitive sense due to the
significant amount of exports from Taiwan to the mainland, which in 2017 totaled almost $90 billion (nearly 30 percent of total Taiwanese exports). Taiwan is followed by Korea, Malaysia and Hong Kong. With the exception of Chile, South Africa and Costa Rica, all the countries with the most indirect export exposure to the United States (via exports to China) are in Asia.”

Foxconn is the 3rd party contract manufacturer that makes iPhones for Apple. While its assembling plants are in China, Foxconn is listed as a Taiwanese company. A large part of this quote can be attributed to the iPhone.

People always mention iPhones being made in China as some kind of shame for America, It’s because Steve Jobs and co like pistol whipping their suppliers on labor costs that many components are put together in China. I used to pass by one of the Foxconn plants everyday from the bus window in a city in Northeast China. Trust me—the Foxconn workers are not a jubilant group in their medium blue outfits (just a slightly lighter color than Menzie’s blog margins) with shower cap gear. The suicide rate at Foxconn plants is very high. China has no labor laws (and what labor laws they do have everyone and their brother knows they are never enforced). Steve Jobs, Tim Cook, and the Apple execs who make decisions on suppliers are very well aware and culpable for decades in the whole set up, as really is anyone who purchases the devices. Most consumers (in America, China, etc) “know the score”, and have decided laborers suffering is well worth them having their convenient high-tech devices. The story isn’t that drastically different from an American located Amazon Distribution Center—just the Chinese worker from “the countryside” (and really the city for that matter) is willing to eat more sh*t.https://www.sfgate.com/business/article/Workers-at-Apple-supplier-Catcher-describe-harsh-12511361.php

The hardest part of this now for Tim Cook and pals at Apple is putting on an Oscar worthy performance for the few journalists and/or few labor rights activists who question them about their choice of suppliers, as Cook and pals look into the TV camera and go “Oh…. well….. I only just found out about this just today, and damn you better believe we are going to get to the bottom of this!!!!” as a 6 year old changing his channel to “Wild Kratts” cartoon happens upon Cook’s bullsh*t defense and starts laughing uncontrollably.

I’ve said it before that economic and strategic considerations often do not align. This link is to an article by David Goldman, a columnist for Asia Times. He is politically conservative (which I guess automatically makes his observations meaningless). Regardless, he is not arguing in support of Trump’s tariffs, but rather (strangely) more government focus on supporting U.S. technological innovation.

“I’m a free marketer. But the one thing markets cannot do is divorce themselves from culture. It is when we have a national security requirement, forcing us to the frontier of physics to develop weapons that are better than those of our rivals, that we get the best kind of innovation. So the government has a role—a critical role—in meeting the Chinese challenge.

If the Chinese are spending tens of billions of dollars to build chip fabrication plants and we come up with a better way of doing it, suddenly they’ll have a hundred billion dollars’ worth of worthless chip manufacturing plants on their hands. But you can’t predict the outcome in advance. You have to make the commitment and take a leap of faith in American ingenuity and science. We can meet the strategic challenge of China, but we have to meet it as Americans in the American way.”

We have played this chip manufacturing war with our Asian nations such as Korea. And we usually ended up losing big time. Which is why the US chip manufacturing sector typically holds its hands out for protection.

I remember back in the day when the Japanese took over memory chip mfg. I also remember that murikan memory chip mfg’er gave up on memory and went for specialized chips. It was a good decision by the murikans. Why fight over a low margin commodity.

“David P. Goldman is a columnist for Asia Times. He also writes regularly for PJ Media and the Claremont Review of Books and is the classical music critic for Tablet magazine. He has directed research at investment banks and served as a consultant for the National Security Council and the Department of Defense. A senior fellow of the London Institute for Policy Studies, he is the author of How Civilizations Die (And Why Islam Is Dying Too). ”

Islam is dying? Claremont – nice town but very, very conservative. An investment banker who loves classical music. Sorry – not an economist. Besides, jazz is my style!

We had to endure a lot of insults to the Chinese before your “source” got to anything remotely close to economics. I love this one:

“The Chinese live a double life. If you walk down the street in Beijing, you see people who dress very drably, who show little emotion and do their best not to draw attention to themselves. But if you go to a Chinese wedding or a restaurant where families gather, the same people are loud and bumptious. ”

Seriously? Has the clown ever been to Manhattan. The East Village has a lot of people dressed down even at night when they are loud and bumptious. But then head uptown on the Lexington line to the Upper East Side for a party where people are dressed to the nines and still loud and bumptious. And no – most of the people on the Upper East Side are either white or Jewish.

“China, on the other hand, is an empire based on the coercion of unwilling people. Whereas the United States became a great nation populated by people who chose to be part of it, China conquered peoples of different ethnicities and with different languages and has kept them together by force. Whereas our principle is E Pluribus Unum, the Chinese reality is E Pluribus Pluribus with a dictator at the top. China once covered a relatively small geographic area. It took about 1,500 years for it to reach its current borders in the ninth century. These borders are natural frontiers. China can’t expand over the Himalayas to India, while to its extreme west is desert and to its east is the ocean. So China is not an inherently expansionist power.”

The U.S. has different ethnicities and with different languages. Ask the blacks if their ancestors choose to move here centuries ago. Ask the American Indians about force. We used to be a modest sized nation but we sort of forced our way west to the Pacific Ocean.

“But the Chinese still speak very different languages. Cantonese and Mandarin are as different as Finnish and French.”

Like no one here speaks anything but the Queen’s English? I bet if someone from New York visited Alabama, he could not understand their version of English. And of course many citizens of my city speak Spanish or Japanese or even Chinese!

“Here in the West, we have a concept of rights and privileges that traces back to the Roman Republic”.

Ah yes – Rome which turned into an Empire and conquered most of Europe. So how are we any different than his characterization of China?

Bruce Hall Your link reads like a confused and rambling rant. And worst of all, his conclusions don’t seem to follow from the main argument outlining his perception of a Chinese threat. I’m not qualified to comment on his understanding of Chinese culture, but I’ve read enough Cicero and St. Augustine (yes, in the original Latin) to know that he doesn’t have a clue about either. But let’s dig into the meat of his argument.

The first problem is that no country can afford to try and achieve an absolute advantage in every possible strategic capability. And even if a country does achieve an absolute advantage, that doesn’t mean the country can or should have a comparative advantage. The second problem is that nowhere in his long rant did he recommend raising taxes to pay for the needed government investment in strategic capabilities. The third problem is that even if we come up with a better way that makes Chinese products worthless, what is to prevent the Chinese from coming up with a third way that makes our formerly better way worse? This is an endless loop. And doesn’t making Chinese products “worthless” just mean that they will cost less than more valuable US products? How does lowering the price of Chinese goods make those goods less attractive? Fourth, whenever I read something that begins “I’m a free marketer. But….” I can be quite confident that the person isn’t really a free marketer at all. It’s just a defense mechanism. Fourth, the last two sentences of your quote are meaningless blather. “…we have to meet it as Americans in the American way.”??? Really, what the hell does that mean? This just comes across as yet another clash-of-civilizations rant.

But the biggest problem with his argument is that he never really identifies the supposed threat coming from China. If the threat is supposed to be the risk that the Chinese will steal military secrets from defense contractors, then maybe we should change our laws so that defense contractors don’t have proprietary rights and the US government owns all defense related technologies. Why not raise taxes so that DoD can hire and retain top flight scientists? And if the problem is maintaining an industrial base capability, then the obvious solution is to fund arsenals at a warm-base level. That’s not particularly efficient, but it’s probably the least bad option. And if the problem is the risk that China will become a regional hegemon, then perhaps Team Trump ought to reconsider its rejection of TPP. It seems to me that this guy is making exactly the same mistake that he accuses economists of the 1970s of making with respect to the Soviet economy. It’s the same mistake that a lot of military people make today when talking about “efficiency.” Talk to any senior military officer and you’ll soon discover that they understand efficiency in terms of how well quickly a system responds to a centrally issued command. Economists understand efficiency in terms of achieving a given output using minimum inputs. This guy clearly sees things in military terms.

So here’s what I learned from this guy. He doesn’t know jack about ancient history. He doesn’t understand comparative advantage. And he can’t quite make up his mind whether he thinks a centralized economy is more efficient than a decentralized economy.

I believe Goldman’s point was that the U.S. got complacent and focused on non-strategic technology while the opposite has been happening in China. I did not read into his article that he felt the U.S. needed to focus on everything, but that there were certain efforts that were critical to maintaining and offsetting China’s strategic push.

Yes the article “rambled” somewhat, but the context was a speech, not an academic paper.

Bruce Hallthe U.S. got complacent and focused on non-strategic technology

Do you see the problem here? Thinking like this imagines “the US” as a single entity. Putting on my Hegelian/Marxist hat, what he’s doing here is a kind of reification. Reading stuff like that reminds me of the original cover on Hobbes’ book “Leviathan”. It was this image of a huge giant man made up of small men. Leviathan was centrally directed by the giant’s brain, not by the small men who made up the body parts. Goldman is really wanting to argue that there should be a centrally directed division between how much strategic and non-strategic technology “the US” should have. That’s not how market economies work. That’s why his claim to be a free marketer is just posturing. Free markets are emergent processes, not centrally planned outcomes.

“Turning back to our two economies, consider the three graphs above. China does something that Japan, Korea, and other Asian nations do—it massively subsidizes capital investment in heavy industry. From the Chinese standpoint, a steel mill or a semiconductor fabrication plant are public goods—the Chinese look at these things the way we look at highways and airports. And as a result of Chinese subsidies for heavy industry, America has been pushed out of any major capital-intensive manufacturing. Thirty years ago the Japanese were doing this, which is why the Reagan administration took steps to force the Japanese to build car plants in the U.S. But Japan’s economy was very small compared to ours. Because China’s economy is roughly the same size as ours, the impact of Chinese subsidies is huge.”

Excuse me but the U.S. subsidizing R&D through the tax code. Of course I give him some credit for recognizing that a lot of R&D is done in Asia. PeakyBoy does not know this.

“And if the problem is maintaining an industrial base capability, then the obvious solution is to fund arsenals at a warm-base level. ”
We do a bit of that. F35 anyone? Littoral Combat ships anyone? Another Nuclear Powered Aircraft Carrier Battle Group anyone?

Bruce Hall: Let me just say, inferring schizophrenia from attire is laughable. Personally (and I think I probably have more experience with Chinese both here and abroad than Mr. Goldman), I do not believe the prevalence of schizophrenic behavior is greater in Chinese society (on mainland, abroad) than in other societies.

Menzie, I’ll completely defer to your knowledge about the Chinese culture and behavior, although I didn’t get “schizophrenia” from Goldman’s description of his observations. I’d venture that because of the wealth generated in the cities, that Goldman’s description of clothing and public behavior may be dated and, perhaps, more apt for smaller towns and rural areas (which would probably be true for the U.S. as well).

Bruce Hall: Good point. He didn’t use the work “schizophrenic”. The exact passage which hit me:

The Chinese live a double life. If you walk down the street in Beijing, you see people who dress very drably, who show little emotion and do their best not to draw attention to themselves. But if you go to a Chinese wedding or a restaurant where families gather, the same people are loud and bumptious. Their real existence is a family existence. During the Lunar New Year, the Chinese have the largest migration in history—three billion long-distance journeys are undertaken—because all Chinese will travel long distances to be with their family.

This struck me as the quintessential old Occidentalist view of inscrutable Asians. Having lived my entire life in America, I know there is a time and place for all types of different behavior. And yet, we don’t say Americans lead a double life.

In other words, beware the subtext of articles that purport to infer the thoughts and motives of “a people” when the article is written by someone who has an ax to grind. (On the other hand, he can’t be all bad since he’s got an appreciation for Bach.)

As a white male born in America, I am semi-proud to say I spent 7 years of my adult life in China. I’m not going to say I didn’t see some strange occurrences while I was there, or meet some “eccentric” individuals (let’s remember 7 years is a pretty damned long time). If I live to be 80 years old, that would be 8.75% of my life or 1/12 of my entire life. I even venture to say, it gives me some insights into mainlandChinese culture that Menzie may not have (assuming he has spent less than 1 year total on the mainland).

I knew a fair amount of Chinese who could speak better English than native English speakers (think of your average Tea Party and/or MAGA southerner with words like “ain’t”, that don’t apparently know Medicare and Medicaid are government programs, or West Virginians convinced the “rebirth” of the coal industry is just around the corner, and this may not stretch your imagination much). They are well-educated, and a significant portion of the population “knows the score” on Mao etc (knowing the difference between being dumb enough to speak things out and smart enough to keep things under your hat, does not mean you are not fully aware of Tiananmen Square, “Cultural Revolution” etc.) Discussing these things outside of the family dinner table or among trusted friends really achieves nothing for Chinese.

And as far as “top-down culture” What would you call King Henry VIII?? What would you call Germany’s “Kaiser”?? What would you call British Royalty?? How about Mussolini of Italy that many Europeans still celebrate and revere to this very day??

People like David Goldman, similar to William F. Buckley, Pat Buchanan, Peter Brimelow etc—-cater to a certain white male “audience” who have achieved very little in their own life and are looking for any weak string to grab onto for a feeling of self-esteem or self-worth. And luckily for such panderers, such an audience always exists. David Goldman trades in a worn out (but sometimes profitable) currency known as “inferiority complex”, of which, a Mr. Bruce Hall apparently is searching for an inoculation from.

If this author walked in my city – he might think we are inflicted with schizophrenia too. Then again I had to endure a crazy homeless woman on my subway trip home just now simply because I told her which stop to change trains on. She was white and I could tell she did not like Asians. The black dude next to me pulled his hoodie over his head just to avoid the crazy lady. New York City – the best!!!

I’m not going to provide the links, as I feel it rewards or reinforces the negative behavior. But David Goldman has done multiple interviews with a Canadian outlet called “The Rebel”, which many have compared to Breitbart. One of “The Rebel” female hosts did an interview with “The Daily Stormer” which is a neo-Nazi site while she was still employed by “The Rebel”. Goldman did more than one interview with “The Rebel” both before and after that disgrace. Goldman is well aware of who his target audience is, racists who think they are “sophisticated” racists on the basis they don’t run around with bed sheets covering their head. “The Rebel” also defended their own correspondent after he openly and aggressively denied the Holocaust, Gavin McInnes. Again, David Goldman appeared on “The Rebel” after this had occurred.

The obvious question is, “Why would David Goldman make multiple appearances on a media outlet/website, both before and after, above disgraces??” The self-evident answer is, Goldman is catering and tailoring his writings and speaking engagements to those who hunger for validation of racism. It’s also worth noting Goldman continually badmouths The New York Times, and trots out the “liberal media” trope.

Good to know. I’ve read only one thing from this clown and I already tagged him as a racist. But at least he gets that Asian nations also do R&D. Notice in his latest rants Bottom Feeder still does not get this.

An answer to the question: “Who Else Gets Hurt in a Sino-US Trade War?” in the latest news the big loser may very well be N. Korea. It’s too early to tell how the trade and nuclear negotiations will evolve, but movement by N. Korea and China has been significant. S, Korea and the US have reached a new trade agreement, and the value of that is still TBD.